Tag Archives: MP3

Today I have published the latest Music Industry Blog report: ‘The Music Format Bill Of Rights: A Manifesto for the Next Generation of Music Products’.The report is currently available free of charge to Music Industry Blog subscribers. To subscribe to this blog and to receive a copy of the report simply add your email address to the ‘EMAIL SUBSCRIPTION’ box to left.

Here are a few highlights of the report:

Synopsis

The music industry is in dire need of a genuine successor to the CD, and the download is not it. The current debates over access versus ownership and of streaming services hurting download sales ring true because a stream is a decent like-for-like replacement for a download. The premium product needs to be much more than a mere download. It needs dramatically reinventing for the digital age, built around four fundamental and inalienable principles of being Dynamic, Interactive, Social and Curated (D.I.S.C.). This is nothing less than an entire new music format that will enable the next generation of music products. Products that will be radically different from their predecessors and that will crucially be artist-specific, not store or service specific. Rights owners will have to overcome some major licensing and commercial issues, but the stakes are high enough to warrant the effort. At risk is the entire future of premium music products.

D.I.S.C.: The Music Format Bill Of Rights

The opportunity for the next generation of music format is of the highest order but to fulfil that potential , lessons from the current digital music market must be learned and acted upon to ensure mistakes are not repeated. The next generation of music format needs to be dictated by the objective of meeting consumer needs, not rights owner business affairs teams’ T&Cs. It must be defined by consumer experiences not by business models. This next generation of music format will in fact both increase rights owner revenue (at an unprecedented rate in the digital arena) and will fuel profitable businesses. But to do so effectively, ‘the cart’ of commercial terms, rights complexities and stakeholder concerns must follow the ‘horse’ of user experience, not lead it. This coming wave of music format must also be grounded in a number of fundamental and inalienable principles. And so, with no further ado, welcome to the Music Format Bill of Rights (see figure):

Dynamic. In the physical era music formats had to be static, it was an inherent characteristic of the model. But in the digital age in which consumers are perpetually online across a plethora of connected devices there is no such excuse for music format stasis. The next generation of music format must leverage connectivity to the full, to ensure that relevant new content is dynamically pushed to the consumer, to make the product a living, breathing entity rather than the music experience dead-end that the download currently represents.

Interactive. Similarly the uni-directional nature of physical music formats and radio was an unavoidable by-product of the broadcast and physical retail paradigms. Consumers consumed. In the digital age they participate too. Not only that, they make content experiences richer because of that participation, whether that be by helping drive recommendations and discovery or by creating cool mash-ups. Music products must place interactivity at their core, empowering the user to fully customize their experience. We are in the age of Media Mass Customization, the lean-back paradigm of the analogue era has been superseded by the lean-forward mode of the digital age. If music formats don’t embrace this basic principle they will find that no one embraces them.

Social. Music has always been social, from the Neolithic campfire to the mixtape. In the digital context music becomes massively social. Spotify and Facebook’s partnering builds on the important foundations laid by the likes of Last.FM and MySpace. Music services are learning to integrate social functionality, music products must have it in their core DNA.

Curated. One of the costs of the digital age is clutter and confusion: there is so much choice that there is effectively no choice at all. Consumers need guiding through the bewildering array of content, services and features. High quality, convenient, curated and context aware experiences will be the secret sauce of the next generation of music formats. These quasi-ethereal elements provide the unique value that will differentiate paid from free, premium from ad supported, legal from illegal. Digital piracy means that all content is available somewhere for free. That fight is lost, we are inarguably in the post-content scarcity age. But a music product that creates a uniquely programmed sequence of content, in a uniquely constructed framework of events and contexts will create a uniquely valuable experience that cannot be replicated simply by putting together the free pieces from illegal sources. The sum will be much greater than its parts.

Today Blackberry announced their anticipated BBM Music service, which it transpires is powered by white label cloud music stalwart Omnifone (who also power the likes of Sony and Vodafone).

In short the service offers:

50 tracks per month for a £/$ 5.99 fee

Is available to Blackberry Messenger (BBM) users

Users’ tracks are available for their BBM friends to listen to (so the more friends with the service the more music you have access to)

It is launching in Beta in the UK, US and Canada today and will eventually roll out to 18 countries

Blackberry have done something with BBM Music that many other services haven’t: they have targeted a specific defined consumer segment. Which in turn is something that the majors, Universal in particular, are increasingly looking for in music services they license to.

Blackberry has weathered a lot of tough marketplace scrutiny over recent years with many questioning how RIM will deal with the iPhone threat. Those concerns are valid ones but primarily relate to the email-focused business users and misses the massive importance of the youth segment to Blackberry adoption. Blackberry’s youth appeal largely stems from BBM presenting a cost-free alternative to texting for text hungry youths. Blackberry’s ability to successfully simultaneously target these two almost diametrically opposed segments with the same device portfolio has been little short of masterful. This was well illustrated to me when a friend recently told me about when his teenage daughter saw him checking email on his Blackberry she asked him “what do you need a Blackberry for Dad? Aren’t you too old for one?”!

So by targeting their youth centric installed base of 45 million BBM users with a cheap, inherently viral and social music service plays to one of Blackberry’s key strengths. Of course direct comparisons with Rhapsody, MOG, rdio, iTunes, Spotify etc are unlikely to be unfavourable, but that’s simply not what BBM Music is about. We’ve reached the stage of maturity in digital music where we shouldn’t be talking anymore about ‘an iTunes killer’ or a ‘Spotify killer’. Instead the music industry needs targeted segmented offerings that grow the market by engaging with un-penetrated consumer segments. In that context, BBM Music should be a valuable addition to a digital music marketplace that is in real need of new differentiated services.

Finally….the timing of the announcement, off the back of BBM’s new found infamy as the communication method of choice for London’s rioters is unfortunate but does open up some interesting potential marketing slogans, such as ‘download while you loot’ and ‘so cheap it’s a steal’….And if you missed it, don’t forget to submit an email subscription to this blog to get a freecopy of my latest report: ‘Agile Music: Music Formats and Artist Creativity in the Age of Music Mass Customization’. See here for more details.

[Please note that this post first appeared on the Forrester Consumer Product Strategy blog. Over the coming month or so I will be migrating all of my activity there. I will soon be posting new information here for you to amend your feeds and subscriptions. Thanks]

Lots happened in 2009 but it wasn’t a vintage year for digital music (in fact it was the year it well and truly lost the digital buzz to eReaders). All in all I’d give 2009 a 6 out of 10, with the launch of Spotify accounting for at least couple of those points and the following as the 5 key disappointments:

Comes With Music under-whelmed (as did Play Now plus)

ISP services didn’t get off the ground (including unlimited MP3’s nearly but not quite moment)

Apple’s new killer music format was….oh iTunes albums

imeem gave a master class in how not to make money out of social music

So will be 2010 be any different? Though I don’t think it will be the year digital music will really come of age (that’s at least a couple more years away) I do expect it on balance to be a stronger one than its predecessor. Leaving aside the few specific developments I’m not able to talk about here are a few of my predictions:

Apple launches a major refresh to the music experience. (I’ll caveat this first prediction with the disclaimer that Apple make a habit of proving wrong those of us foolish enough to try to second guess them.) With that said, there are many things Apple could do with music in 2010. Whatever they do, they have to do something significant if they are to stay on top of their game. They’ve spent much of 2009 collecting user data via the Genius app and they’ve acquired some top notch streaming and programming expertise via the Lala acquisition. And of course they’re busy developing with content partners for the forthcoming touch screen note book. Here’s hoping that this will all add up to something like an integrated on-device, connected, interactive and immersive music experience where the cost is bundled into the price of the device (perhaps with the touch screen note book as the flagship device for the offering). Apple wouldn’t be in the game of hiding the cost of music to the consumer (a la Comes With Music) but they may use content subscription bundling as a way to maintain premium price points and differentiation for their devices.

MySpace deepens its focus on music. Though MySpace will spend most of 2010 simply ingesting iLike and imeem, the acquisitions form part of a longer term strategy to breathe much needed new life into MySpace’s music role. The new management talent is tasked with pulling MySpace from the brink of becoming a garbled also ran and dragging it by the collar into the 2nd decade of the century. Though they’re unlikely to admit it, the mainstream social networking race against Facebook is as good as over. By contrast they remain the #1 destination for artist communities online, yet without a major reinvention they’ll start to feel the competitive pressure bite there also.

Spotify scales back its US launch. Spotify appears to be paying the price for the major labels having second thoughts about ad supported on-demand content. Those pesky US licenses have been proving tough to tie down and I’d expect to see Spotify’s US launch to be more strongly focused on the premium tier than it is in Europe. If so, it could actually prove to be something of a blessing for the Swedish upstart, allowing it to consolidate the monetization of its core user base rather than building a US ad business from scratch whilst millions of free US subscribers add cost to the bottom line. Whatever the case, Spotify’s European revenue fundamentals should improve in Europe in 2010.

ISP music services don’t pack a killer punch. I’m a firm believer that ISPs will become established as a core element of the digital music value chain and the best way of fighting piracy head on. In 2010 we’ll see more services launched both in the US and in Europe, especially the UK. But I don’t see anything yet to suggest they’ll be adequately provisioned to flourish. It’ll take another year or two of revenue pain decline for the labels to adjust their license requirements sufficiently. What do I think will work? 5 pounds / euros / dollars a month for household access to near unlimited (i.e. fair use) MP3.

Semi-pro sites and services prosper. I’m not sure I’d go as far as to say 2010 will be their year, but it will certainly see continued growth for the likes of SellaBand, MyMajorCompany and Tune Core. These sites that create a route to audiences for artists either not good enough or not yet good enough for record deals, play to the strength of the Internet as a social channel for artists and fans. Which of course is all the more reason for MySpace to be watching its back.

To conclude, 2010 will be another year in which digital music continues to find its feet, but significant progress will be made.

Today the triumvirate of Universal Music, UK broadcaster Channel 4 and UK mobile operator Orange announced a Pay As You Go (PAYG) mobile music service called Monkey. The service is aimed squarely at younger consumers, which matches the demographic of PAYG users and Channel 4’s audience. The underlying principle of the service is that it has a low barrier to entry: it utilizes the voice network rather than data network and is thus available across all handsets and does not require any application download. Instead consumers simply dial 247 to listen to playlists streamed at 64 kbps. Most of the more sophisticated behaviour, such as playlist creation, music discovery etc., is expected to happen online, using a cloud based player, where tracks will be streamed at 128 kbps. Playlists can also be shared using widgets for major social networks and via text.

So what impact is this offering likely to have? It’s clearly aimed at enticing young consumers away from file sharing and the positioning point is effectively ‘free music when you top up your phone’. I think there is a risk of worst of both worlds here. Firstly, I don’t buy into the argument that streaming reduces file sharing penetration. It may cause file sharers to download less from P2P networks, but it’s unlikely to entice them away from them as they’ll still want music for their MP3 player, to burn onto CD for their friends etc. Granted, Monkey steps closer to being a replacement in that it has a portability story (of sorts) and it has a sharing story (of sorts). But it doesn’t provide true portability (what do you do when you’re underground for example) and it only offers partial catalogue.

The killer point though is that it uses voice minutes and the cost of calls is 20p per minute. So it will cost about 70p to listen to a single and an entire 10 pound top up will give you about 1 album and no time left for talking. So consumers are paying the same amount as an iTunes single download (even more for an album) but only getting a low quality analogue audio stream. (And what happens when somebody wants to call them when they’re listening over the voice line?)

*Orange just called me to clarify their press release. The press release reads:

“Monkey customers can access the service on their phones by dialling [sic] 247.”
and

“Calls cost 20p per minute”

However, following my phone call from Orange it transpires that the per minute pricing applies to voice only and not music calls, even though this isn’t actually explained in the release.

Also another interesting detail emerges: the service is actually a limited mobile music service, not an unlimited mobile music subscription, hence the careful use of the term ‘access to music’ in the release. Customers are only allowed to listen to 600 minutes of music per month on their phone (again not in the release), which translates into 14 albums. If you take a 30 pounds top up, that then translates into 2 pounds ten per album listen, so if you listen to an album, say 3 times in a month, that’s 6.30 an album. Which isn’t far off the cost of a standard album, but of course you don’t get to keep it after you’ve finished listening . The ‘3 listens’ cost drops to 4.20 for a 20 pound top up, 2.10 if you just take a 10 pound top up. So still far from free, even though they’re being told it’s ‘free’ music, which in turn reinforces conceptions that music is a free commodity (thus further undermining perceived values of music).

The additional fact that Universal will make some releases available here before anywhere else is a brave move and underlines the major’s persistently adventurous product innovation. It will certainly be a key asset for demonstrating consumer value, but it will need careful positioning alongside premium products. How, for example, would a high-end 15 pounds a month subscriber to Virgin’s unlimited MP3 subscription service (also in conjunction with UMG) feel if they realized they were getting new releases after the lower end Monkey customers were?

The other interesting sub text here is the underwhelming success of Comes With Music (Universal and Orange are both key UK partners for Nokia). Is this picking up where CWM has failed to do so? As I’ve stated here many times before, I am a firm believer in the CWM model and I believe it is the best tool that the music industry currently has for fighting piracy. It is a genuinely compelling alternative to file sharing as it has a viable portability and ownership story. Unfortunately it’s been hindered by channel issues, marketing problems and limited consumer awareness and understanding.

When I asked how Monkey would be positioned alongside CWM, UMG’s Rob Wells said Monkey was aimed more at younger, lower end consumers and Orange’s Pippa Dunn said that Monkey was for PAYG customers whilst CWM was for subscription customers. Orange’s positioning is clean and elegant, but it’s a shame that CWM is effectively being marginalized as a high-end proposition. That is not its sweet spot. Indeed the strong CWM association with the 5800 illustrates Nokia’s understanding that CWM is best positioned at younger, lower spending consumers and that it does not stand up as well when held up against higher end digital music offerings. Also, from a broader music industry perspective CWM needs to be reaching younger consumers. I hope Monkey doesn’t distract from that.

Today Universal Music and UK ISP Virgin Media announced the launch of an unlimited MP3 subscription service. Yes, you read correctly, ‘unlimited MP3’. And, perhaps even more significantly this goes hand in hand with Virgin committing to a graduated response (i.e. Three Strikes and You’re Out) policy for music file sharers. Universal and Virgin have come to the negotiating table with their highest stakes and in doing so each has got their respective Holy Grail. And don’t underestimate how high those stakes are for each party – basically Universal and Virgin have each delivered as much as they have to offer and conceded as much as they can give: they’ve both played their Aces. Once again Universal put themselves in the position of digital trailblazers, leaving the other majors to follow in their slipstream.

Also, there’s no coincidence about the timing of the announcement i.e. the day before the final Digital Britain report is published. The graduated response approach runs counter to the more modest ‘technical solutions’ that the then Culture Minister Andy Burnham suggested the Digital Britain report will propose. He even went as far as to say that the graduated response approach wasn’t workable.

But he also told the music industry and the ISP’s to fix their own problems rather than wait for the ‘heavy hand of legislation’. Given that this is exactly what has happened, it will be interesting to see how the government responds. Its also worth noting that the release is at pains to stress that disconnections will be temporary and that Virgin will not use its own traffic management technology to enforce the action. Thus the ISP’s arguments that their traffic management technology isn’t well suited to dealing with individual accounts remain in play.

The pricing of course will be key. UK consumers have historically shown little appetite for premium subscription services: HMV and Virgin Megastores both tried and failed – though HMV is back for a second stab, Napster has failed to break out of a small niche, Wippit closed shop and Yahoo and Rhapsody didn’t ever bother to launch here. Of course, none of those were as compelling an offering as this, and this is smartly targeted at households not individuals. But pricing will be key. Price it too highly and you’ll miss the disengaged music households this and just switch over already high spending ones. Price it too low and CD sales will be cannibalized.

It will also be interesting to see whether this announcement means that the UK’s other major label backed unlimited MP3 offering Datz will be breathed new life.

Whatever the political fall out of this announcement, there is no doubting that this is a massive step forward and shows that where there’s a will there’s a way. If the other majors come on board Virgin Media will have a market leading digital music service that will bring real value to their subscribers. At the same time the labels will get a major ISP implementing a twist on their preferred anti-piracy measures without needing the government to do it for them.

It lowers barrier to entry to subscriptions: by using a Pay As You Go solution Napster makes subscriptions more attainable to more consumers, even if they are sneaking them in through the back door

It tacitly acknowledges the dire state of premium subscriptions: the focus on MP3s moves the focus away from the subscription business, but the latter is still Napster’s core business. To really thrive in the imeem and Spotify age they need to be unlimited MP3

This is an innovative move by Napster, and should widen their market appeal, but I can’t help but feel that it is almost embarrassed of its core value proposition (on demand streaming). Positioning the streaming component as a freebie with MP3 tracks will weaken perceived value. They’ll need to be careful with their positioning, or risk further weakening their ability to sell their core product, unless of course they can fire the silver bullet of unlimited MP3s.

The UK music industry and ISPs have been working towards the goals of the government-brokered Memorandum of Understanding since last summer but we’ve yet to see concrete results, in particular with regards to new music offerings.All stakeholders recognize the crucial importance of having a big fat carrot to accompany the stick.Yet we still seem to be some distance from the ISPs being empowered with truly compelling music services they can offer to their subscribers as a genuine alternative to file sharing.

The nuanced specifics here are important.Last year Sky and Universal Music proudly announced a music JV.Details were scarce in the extreme but the strategic ambition was bold.Sky has since then not been able to add any of the other 3 majors onto the JV roster.Part of this may well relate to the other majors getting increasingly narked about UMG’s highly proactive (even aggressive) digital strategy.But more broadly it talks to the fact that there is a lot of distance between what Sky wants to be able to offer its customers and what the labels feel they can provide for the financial terms Sky are willing to consider. This follows on the heels of Virgin Media dropping pursuit of PlayLouder’s MSP offering due to label concerns and also 7Digital so far failing to get any ISP to take up their white label offering.

The root of the problem is that the ISPs want to offer consumers more content and flexibility for less money (and pay the labels less) than the labels are willing to countenance.

But most UK ISPs have good reason for having high demands, as do many other continental European ISPs. They’ve been burnt once, launching poorly featured, weakly differentiated services near the turn of the century. Their inadequacies (and the subsequent failures) weren’t the fault of the ISPs per se, rather they were products of their time, restricted to the terms that the major record labels were willing to countenance back then. (e.g. 99 cents downloads that could only be played on your computer)

Apple changed the rules of the game and the failings of the ISP services were only accentuated.

The ISPs know now that if they get back in the game they have to be differentiated and be able to compete with Apple. But they also know that most of their file sharing subscribers are unlikely to be able or willing to pay much either. So the ISPs want compelling (ideally MP3) services that cost little or nothing to consumers. The labels business models can’t support that model without the ISPs picking up a lot of the cost, which they can’t afford to do due to falling broadband ARPU.

So we’re in a stalemate that nobody really expected to be in. (Indeed back in the summer of last year BMR CEO Feargal Sharkey said he expected to have something to announce “within a matter of weeks”). The labels thought the ISPs would lap up what they had to offer, and the ISPs thought they’d get more. The record labels are not about to change the fundamentals of how they value their IP, but there are some viable mid term compromises that can get us out of this malaise:

A series of Joint Ventures: MySpace have created a blue print for using this approach to get favourable licensing terms to deliver free music that wouldn’t have been financially viable otherwise. And the labels get lots of potential upside and to extend their role in the value chain. JVs would bind the ISPs and labels closer together, create common purpose and engender greater strategic flexibility.

Focus on free, not MP3: the success of Spotify has shown that MP3 isn’t everything. Free music streaming with good catalogue and easy to use UI is actually a winning formula. The business case for hiding the cost of a streaming service in the access subscription is a lot stronger than for MP3 downloads

Time is of the essence: every day that goes by, file sharing grows in popularity and becomes more entrenched. So agreeing on intermediate solutions with a view to a longer term roadmap is far favourable to stalling until the perfect solution can be agreed upon.

UK media retailer has just announced that it will buy 14 retail stores from its struggling competitor Zaavi, which is currently in administration, following the collapse of media distributor EUK, which went into administration following the collapse of its parent company Woolworths which was also a key music retailer. Domino effect anyone?OK, things might not be as bad in many markets as they are in the UK, but a) the UK isn’t the worst hit b) other markets should look to the UK for what may be coming.

The overriding problem of course is that not enough people are buying music anymore and of those that are, many of them are shifting lots of their spending away from the high street retailers to online CD stores and to digital download stores. The harsh fact is that no high street music retailer has become a leading digital download store. Some have done better than others, but measure against the success of Apple’s iTunes Music Store, all have failed. They’re not helped by the fact that most digital download stores are an artifact of iPod sales.So selling in MP3 will help them (i.e. being able to sell to iPod owners), but they’ll still be hindered by their biggest problem: integration. No high street retailer has bitten the bullet and fully integrated their digital offerings with in store retail. The level of integration required should be so complete that it seriously threatens near term in store retail sales. Which is of course why it hasn’t happened yet.But if they don’t pursue such strategies soon, they’ll lose that revenue to other outlets rather than to their digital divisions. Meanwhile Amazon is setting the standard for integration.They could still go further, and they should, but they’re much further along this road than mostof their bricks and mortar peers.

CD sales are in terminal decline.It’ll be a long prolonged death, so there’s still plenty of business in it, but succession and transition strategies need to be built around that basic tenet. The fact that music retailers are now media retailers (i.e. they sell DVDs, games, electronics etc) is indicative of the realization of where the future is.But aggressive digital strategies are key to retailers can slowing the music revenue share decline and turn it into channel shift rather than revenue loss.

Even though HMV’s revamped digital strategy isn’t as bold as it should be (yet anyway) another announcement shows their ambition: they’ve launched a joint venture that gives them a portfolio of live music venues. This is HMV trying to safeguard their future in the post-CD music business.Such a move isn’t available nor appropriate for all media retailers, but the basic assumption of ‘diversify or die’ is.

Amazon just sneaked up on the UK music market with it’s stealthy launch of the UK version of its MP3 store. Why the quiet launch?Amazon promised back in Midem that they’d launch in Europe before year end. It seems to have to taken them longer than expected to make this happen and the quiet, late launch feels like Amazon might not have been able to get all of the pieces in place for launch that they’d wanted.

It is, of course, live in time for the crucial Christmas rush though, and unerringly coincidental with the temporary closure of Zavvi’s online store.

Will Amazon change the UK digital music market?No.Will it become a serious player? Yes.

If anyone can make digital download stores work outside of the iTunes / iPod eco-system, it is Amazon. They have the programming expertise, the packaging expertise, the audience (more European iPod owners buy CDs online than they do downloads).But they need to create a reason for iPod owners to buy from them and not iTunes Music Store. They can’t really differentiate on content.Differentiating on MP3 is not a massive differentiator for iPod owners as they don’t experience any restrictions with their devices with iTMS downloads.

So the key avenue for them is pricing.And this seems to be the core positioning piece with the store currently, with very cheap album and single pricing listed at the top left of the page (songs under 60p and albums under 2 pounds). Either they’re loss leading as an aggressive market entry strategy or they’ve got some good deals from the labels. If it’s the former, they’ll have to revert to standard pricing at some stage. If it’s the former the labels will need to wise up and give similar deals to Apple if they want to avoid cutting their nose to spite their face.

So, assuming pricing will normalize towards iTMS for one reason or another, the differentiation issue will remain. Amazon has the best chance of gaining significant market share form Apple but they won’t unseat Apple from its market leading position. Also, the whole momentum of digital music is shifting away from paid downloads to new offerings like Comes With Music and Datz Music Lounge. Thus Amazon will be competing for distant second place in what will increasingly become a mere subset of the digital music market.

Don’t get me wrong, I think it’s a solid enough idea (even though it will mean little without Apple on board) but it’s tragically ironic that it’s taken the music industry so long to come around to this way of thinking.